Performance overview: China

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China retains its 28th rank for the third year in row. Its overall score improves, thanks to progress in some of the more sophisticated areas of competitiveness that contribute to shaping the country’s innovation ecosystem. These include higher education (54th, up 14), innovation (30th, up one), and business sophistication (34th, up four). This bodes well for the future while China transitions to a new normal, where growth will need to be increasingly driven by innovation.34 Yet China still lags behind in technological readiness (74th, unchanged) despite a significant improvement in all components of this category since last year. A more widespread adoption of technology by business and the population at large will increase productivity and create a more fertile innovation ecosystem. The gains posted in these categories are partially offset by a worsening fiscal situation—the budget deficit more than doubled between 2014 and 2015, to reach 2.7 percent of GDP—but China still ranks a strong 8th in the macroeconomic pillar. In addition, little progress has been made over the past year in two areas that are critical for accelerating the transition to a new growth model. First, goods market efficiency (56th, up two) is undermined by various distortions, including the lack of competition caused by high barriers to entry for foreign firms (113th) and new businesses—it takes over a month to start up a business. Second, inefficiencies and instability characterize the financial sector (56th, down two)—the result of inefficiencies, non-performing loans, lack of competition, and suboptimal allocation of capital.35